The dollar has started the week on the softish side. This may partly involve some pre-positioning ahead of tomorrow night's Fed rate cut. But it will also be a function of the benign external environment, ING's FX analyst Chris Turner notes.

Tariff cost might ultimately be passed on

"Here, global equity markets continue to edge higher on a cocktail of resilient business optimism and the prospect of lower core borrowing costs. News of the continuing detente in US-China relations is also helping here, as Presidents Trump and Xi appear set to talk on Friday and seal the deal regarding TikTok's future status in the US. Chinese asset markets remain supported, and USD/CNH is drifting towards the year's lows again."

"Over the summer, we have been writing about the success of the carry trade. One of the most popular carry trade currencies has been the Turkish lira. Even here, investors were rewarded with the news yesterday that a crucial court case – potentially to remove a key opposition party leader from his position – has been adjourned until 24 October. Carry traders normally expect the pick up in high interest rates to offset nominal lira depreciation, but received the bonus of lira appreciation yesterday. And returning to the US, news that the Fed's Lisa Cook will be able to vote at tomorrow's FOMC meeting after winning an appeals court case hasn't meant much to markets. A 25bp rate cut remains firmly priced."

"For today, the focus will be on US August retail sales. The control group in this figure is expected to have risen by 0.4% MoM from 0.5%, suggesting the US consumer is doing ok. Today’s release of import price data will be closely examined to determine who is absorbing the cost of tariffs. Are exporters to the US reducing their prices, or are US businesses either absorbing the costs through margins or passing them on to consumers? Our team feels that the tariff cost will ultimately be passed on."